Skip to main content

Iron Mountain breaking out - should you invest?

If you are a regular user of stock charts, sometimes you see a textbook pattern develop. That seems to be what is happening with Iron Mountain (IRM).

The stock showed up on this weekend's Trend Busters list (http://trade-radar.com/AlertHQ/trendbusters.html) as a BUY signal. In other words, it looks the stock has been in a down-trend and has suddenly turned up. Here is the chart:



Iron Mountain has been in a prolonged down-trend since the end of August (see the blue downward sloping line). It is amazing how perfectly the stock tracked that blue trend line all the way down. This makes the recent upside breakout that much more impressive.

Other aspects of technical analysis suggest the move may have legs. MACD has decisively turned up. The stock closed above its 50-day moving average today, a day when tech stocks were under pressure. The Aroon UP indicator has shot from nearly zero up to 100.

I've also showed the Slow Stochastics which shot up from over-sold to over-bought in the last few days. For those with a more short-term focus, this suggests the stock might pause and drop back a bit, perhaps affording a cheaper entry point.

The Background --

So what does Iron Mountain do? The company is a leading provider of data backup and archiving services. In other words, if you have boxes of data records that you need to keep for legal reasons, Iron Mountain will pick them up and store them for you. If you use tapes, for example, to back up the file servers or database servers in your data center, Iron Mountain will pick up the tapes and store them for you in the event you have a problem and need to restore the data. Beyond simple storage, the company offers further services including records management, data protection and recovery, and information destruction.

Iron Mountain operates in North America, Europe, Latin America, and Asia Pacific. It serves financial, commercial, legal, banking, healthcare, accounting, insurance, entertainment, and government organizations. The company has been in business since 1951.

The Financials --

Iron Mountain is a $4.95 billion company which means the company is considered a mid-cap. More importantly, is it cheap or expensive?

Valuation indicators show the stock to close to value territory. The Price-to-Sales ratio of 1.64, Price-to-Book of 2.4 and the Enterprise Value/EBITDA ratio of 9.243 are all quite reasonable. The forward PE of 22 is not too bad for a tech stock.

On the other hand, a PEG of 1.79 is a bit high. The real problem with Iron Mountain, however, is related to debt. The Debt-to-Equity ratio of 1.61 is a bit high and the $3.1 billion dollars of debt the company carries is more than three times EBITDA which leaves the TradeRadar Survivability indicator flashing "caution."  The Interest Coverage ratio for the most recent reported quarter is only 2.38; typically, a value below 2.5 is considered to be a warning sign. The chart below this has been a problem for some time now:


Explore more IRM Data on Wikinvest

On the positive side, the company's cash flow yield is solid and the year-over-year quarterly earnings growth of 281% shows the company is building some momentum coming out of this recession. It's most recent quarter was actually pretty good and suffers in comparison only to the quarter before when the company had record net income and record net margin. The following chart shows the last five quarters:


Explore more IRM Data on Wikinvest

Click on this chart to look at the last 10 quarters and you will see that revenues have only dipped slightly; the company has not suffered as badly as many other companies did during this recession.

The Outlook --

Iron Mountain's quarter ended in December so they are due to report sometime this month or next. The current breakout, then, is probably based on high expectations for the upcoming earnings report. Sequential revenues have been rising for the last two quarters and net income has also been doing well so the expectations are probably well founded.

The company is an industry leader in its niche with only one major publicly-traded competitor, Cintas (CTAS). And it's a good niche to be in. The last two decades have seen an explosion in the amount of data generated by corporations and that trend has not abated. Furthermore, regulatory rules regarding maintaining critical data for years has increased the need for corporations to put all that data somewhere. Both of these factors mean good times for these companies should continue.

So Iron Mountain looks very good from a technical analysis point of view and the potential earnings growth is solid. The only question is whether the company can continue to grow net income strongly enough to keep the high level of debt from swamping the company. Given that the company has survived the recession despite all that debt, the answer is that Iron Mountain will probably be alright.

Disclosure: no positions

Comments

Popular posts from this blog

Brazil - in a bubble or on a roll?

A couple of years ago, no one recognized the real estate bubble even though it was under everyone's nose. Now, analysts and bloggers are seeing bubbles everywhere they look. One of them, they say is in Brazil whose Bovespa stock market index has doubled in the last 12 months. Does the bubble accusation hold water? I don't think so and here are 7 reasons why Brazil is by no means a bubble economy: Exports have held up over the past year thanks to demand from China for Brazil's soya exports and iron ore. This was helped by the the Brazilian government's drive to improve trade links with Asia and Africa. Export diversification, spurred by a more active trade policy and increased focus on "south-south" trade under current president Lula, helped mitigate the decline in demand from OECD (Organization for Economic Co-operation and Development) countries A "sensible" economic framework has been in place since the 1990's. This has included inflation

Thursday Bounce: Trend Busters, Swing Signals and Trend Leaders for July 9, 2009

This is a quick post to announce that we have published Thursday's Trend Leaders, Swing Signals and Trend Busters at Alert HQ . All are based on daily data. Today we have the following: 72 Swing Signals -- A couple of days ago we had 35 signals, today we have twice as many. Happily, we now have 65 BUY signals, a mere 4 SELL Signals plus 3 Strong BUYs. Whoo-hoo! 56 Trend Leaders , all in strong up-trends according to Aroon, MACD and DMI. There are 18 new stocks that made today's list and 60 that fell off Tuesday's list. 48 Trend Busters of which 5 are BUY signals and 43 are SELL signals The view from Alert HQ -- Talk about mixed signals. If you look at our Swing Signals list you would think the market was in the middle of a big bounce. BUY signals are swamping the SELL signals and we even have a few Strong BUYs. Yes, there's a good sprinkling of tech stocks and tech ETFs but the distribution is pretty broad-based with a good number of different sectors represented, eve

Trade Radar gets another update

Some of our data sources changed again and it impacted our ability to load fundamental/financial data. In response, we are rolling out a new version of the software: 7.1.24 The data sourcing issues are fixed and some dead links in the Chart menu were removed. So whether you are a registered user or someone engaged in the free trial, head over to our update page and download the latest version. The update page is here:   https://tradingstockalerts.com/software/downloadpatch Contact us if you have questions or identify any new issues.